On July 3, 2024, the U.S. District Court for the Northern District of Texas made a crucial decision in Ryan, LLC v. Federal Trade Commission, granting a limited stay and preliminary injunction against the Federal Trade Commission’s (FTC) new Non-Compete Rule.
This rule, slated to render nearly all non-compete agreements unenforceable with few exceptions, has stirred substantial controversy among employers and legal experts alike. This article will highlight the decision and discuss what it means for employers going forward.
Basis of the Court’s Decision
The court’s ruling rested on two key grounds:
1 – Lack of Authority
The court determined that the FTC lacks the statutory authority under Section 6(g) of the FTC Act to enact such sweeping regulations. It found the FTC’s historical and statutory context insufficient to support its claim of authority.
2 – Arbitrary and Capricious
Additionally, the court agreed with plaintiffs that the Non-Compete Rule appears arbitrary and capricious under the Administrative Procedure Act (APA). It criticized the rule’s broad prohibition on non-compete agreements without adequately exploring less disruptive alternatives.
Scope of the Stay and Injunction
An important thing to note is the court’s injunction applies narrowly to the named plaintiffs and intervenors in the case, including Ryan LLC, the Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce. For these parties, the Non-Compete Rule will not go into effect on September 4, 2024, pending a final adjudication by August 30, 2024.
However, the court declined to extend the injunction nationwide or to organizational members like those of the Chamber of Commerce of the United States, citing procedural limitations.
What’s Next?
Businesses affected by the Non-Compete Rule are advised to monitor developments closely and consult with legal counsel. The court’s upcoming final decision and rulings from other districts, such as the Eastern District of Pennsylvania, will further shape the regulatory landscape. Employers should prepare for potential compliance strategies while awaiting further judicial clarity.
As the legal landscape evolves rapidly, businesses should stay proactive and informed to navigate the complexities of the FTC’s Non-Compete Rule effectively.
Contact us today to see how we can help your business better navigate the complexities of the FTC’s non-compete rule.
